In response to the recently published Woolard Review, Iridium co-founder and director, Sinclair Elliott explains why, as we emerge from the pandemic, the FCA’s scrutiny of the unsecured credit market and the requirements for further regulation couldn’t have come at a better time. He also highlights his key take-outs from the review and discusses the concept of ‘Compliance by Design’. 
A well-timed review 
"The report was partially commissioned in response to the changing UK lending landscape that was heavily impacted by COVID-19 in March last year. However, the unsecured credit market in the UK has been evolving since the late 1950s, and in many ways this review was perhaps overdue. 
Lending has become integral to how consumers live their lives. Innovation and evolution in the market have meant that the breadth of options open to consumers has been growing, this includes the rise of payday lenders, unregulated buy-now-pay-later (BNPL) products and advances to employees. COVID-19 exacerbated and exposed some already pre-existing areas of concern, including low household financial resilience, insecure incomes and inadequate safety nets. The UK is a global leader in the financial services market, but just under one million people in the UK don’t have a bank account and 10.5 million UK adults would be unable to cover one month of expense if they lost their source of income. 
Into this market there are government responses to COVID-19 - which includes greatly increased opportunities for payment holidays which will, in themselves, offer challenges as we move back to a new normal." 
Key take aways from the report 
"Whilst there are 26 key recommendations that came out of the report, and obviously some further insights, from what is a fairly weighty document I think key for me is the need to integrate a more outcomes focused approach to regulating the credit sector. 
Reviewing how products are used in the real world, and consistently regulated on that basis, seems key to building a healthy and sustainable market. Regulation needs to move away from just affordability and review the broader conduct across the lifetime of the product. Ideally there needs to be a more unified approach to this across the market. 
I would also highlight that sustainable and healthy free debt advice was recommended in the report. The ability to see and control debt is important to Iridium, which is why we invested in Freeze Debt, a mobile app that provides consumers with information and support to help them write off unaffordable debt. We recognise the need to offer different channels to debt resolution, understanding that not everyone is able to, or comfortable to, approach their debt crisis through lengthy calls. It is key that we tackle the stigma and help UK consumers take the first steps towards a debt-free future. Equally, it is important that we embed advice into our exit strategy out of the pandemic and the payment holidays many people have become reliant upon." 
The impact on lenders 
"In truth, I suspect this will be just the first phase of a review of the regulations that underpin unsecured lending. Historically, the financial sector has had to accept the burden to adapt processes and procedures following these reviews. Legislation such as PSD2, Persistent Debt and Breathing Space resulted in both small and large programmes of change. In this instance, I think lenders will be expected to adopt additional processes and provide increased management information, reporting and connected data. The question really is, how can this best be achieved? 
Currently, risk and compliance tend to be reactive and undertaken in response to regulatory changes or serious issues. I think it’s important that we stop seeing compliance as an additional requirement and instead start embedding “compliance by design”. It seems inevitable that the increasing digitalisation of services and lending innovations will result in more frequent regulatory reviews and compliance updates." 
Compliance by design 
"The concept of compliance by design is about moving from reactive to proactive by committing to governance at an organisational level and designing products, policies, procedures and systems which comply with compliance obligations - and reduce human intervention - from the very beginning of the project. In order to do this, you need skilled SMEs embedded at a project level. By making these small iterative decisions along the delivery path, you can actually reduce the overhead of compliance management by baking it directly into the foundations of each creation. 
We can identify and deploy the right associates from our skilled network to scope frameworks and ensure compliance and regulatory obligations are evaluated as part of the project planning. The key is to build multiple opportunities for ongoing incremental improvement across risk and compliance. 
Fundamentally, those companies who will be the most resilient to regulatory change over time will enjoy reduced compliance costs and have a culture of celebrating being the best at this necessary element of doing business in financial services." 
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